Hopes of Weekend Budget Deal Dashed

Californians waiting for a budget deal feel a little like they are reading the fairy tale "The Boy Who Cried Wolf" these days.

Once again Sunday a near promise of a deal proved false after a planned meeting was canceled at the last minute.

The Big Five had an evening meeting scheduled Sunday and leaders were hinting they thought they could make the budget final in time for the Monday morning papers.  But just after 1 p.m. Gov. Arnold Schwarzenegger sent out a news release that said the governor "would not hold any private meetings in Sacramento" today.

It was not immediately clear what caused the meeting to be called off.

The "Big Five" group consists of the top four legislative leaders, plus the goavernor.

The group reported "huge progress" late Friday following talks in the governor's office. 

Saturday, staff members tried to work out legal language that could resolve the remaining issues.

Schwarzenegger and legislative leaders remain at odds over how to close California's $26.3 billion budget shortfall. 

Even when a deal is made, that does not mean the budget is complete.

It still has to be approved by state lawmakers. 

Lack of a budget agreement and a drop in state revenue has forced California to issue IOUs to cover bills from thousands of state vendors.

Remaining pitfalls include how much money to borrow from local governments, whether to guarantee that schools will be repaid money they lose during poor economic times and how much money to save for future budget emergencies.
    
This was not the first time this week that word of a "deal" has been batted about in Sacramento. Schwarzenegger nearly promised one on Wednesday.

President Pro Tem Darrell Steinberg, D-Sacramento, and state Assembly Speaker Karen Bass, D-Los Angeles, said schools are expected to be among the hardest hit when the deficit is solved, and they want to ensure that they are repaid the money they are owed after the downturn. Democrats want a written guarantee the funds will be repaid but they said Schwarzenegger wanted to offer his word instead.

Aaron McLear, a spokesman for Schwarzenegger, said the governor was prepared to sign legislation guaranteeing the school funding but would not agree to Democrats' demands to revise the state constitution to do so.

"Democrats want to slip in a constitutional change without the vote of the people," McLear said.

California already has a budget for the fiscal year that began July 1, thanks to an unusual midyear session in February. But the recession has clobbered the state's economy, putting its budget out of balance within weeks.

The shortfall has grown to more than a quarter of the state's general fund, which pays for daily expenses.

As tax revenue has plunged, the state has begun issuing IOUs to state contractors, a practice it may have to expand to government workers if a balanced budget isn't in place by late August. Contributions to the state pension funds also may be in jeopardy.

Lawmakers said they were aware of the frustrations over their inability to strike a deal.

"People say, 'Why does it take so much time?"' Steinberg said. "We understand the question and the concern. Every number represents a family. Every number represents a child or an elderly person. And you know we're going to get this done, but it is worth fighting for those people."

Schwarzenegger and the Republican leaders of the Assembly and Senate say they will not increase taxes, a point the governor has been making in a commercial that began airing this week.

That means he and lawmakers must close the gap with spending cuts and other measures, which could include accelerating income tax collections, borrowing tax money from city and county governments, and shifting money between existing government accounts.

The outstanding issues include funding for education and health and human services, the size of any reserve fund and whether California should raid local government accounts.

The state's credit rating continues to sink as lawmakers try to find common ground.

On Tuesday, Moody's Investor Services downgraded California bonds to near-junk status, from A2 to Baa1, and placed the state's credit rating on watch for possible further reductions. The credit rating agency said the budget deadlock had put constitutionally required payments to bond holders at risk.

The administration also notified state employee unions that the state would cut 2,000 jobs on top of 4,600 layoff notices issued previously.

Schwarzenegger said he wants to avoid a budget-balancing plan that addresses only the state's current fiscal problems. He instead wants to begin streamlining government and weeding out waste and abuse.

Democrats have agreed to allow the governor to study whether California should privatize its welfare eligibility system, as other states have done. Currently, counties determine who is eligible for welfare.
 

Copyright Associated Press / NBC Bay Area

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